Two years of uninterrupted expansion in manufacturing

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) climbed 2.3 points to 59.0 in September 2018, indicating faster growth across the manufacturing sector and extending the index’s period of uninterrupted growth to a full two years (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Chief Executive Innes Willox said: “The run of strong performance by Australia’s manufacturing sector hit a new milestone in September 2018 capping two years of growth. The food & beverages sub-sector has been the cornerstone of this run and has been solidly supported by the construction-related non-metallic mineral product sub-sector as well as the metal products, machinery & equipment and the chemicals sub-sectors. The benefits of this expansion have been widely distributed with a healthy rate of employment growth over the past year and very strong signs of wages growth over the past three months following a more gradual pace of increase in the preceding few years. The signs are good for the immediate outlook also with exports, production, employment and new orders all in the black and improving on the previous month. Alongside the pick-up in wages, input costs also lifted at a rapid rate and by more than selling prices, continuing the tightness of margins across the sector,” Mr Willox said.

Australian PMI®: Key Findings for September 2018:

The Australian PMI® has indicated positive conditions (results above 50 points) for 24 consecutive months – the longest run of recovery or expansion since 2005.

All seven activity sub-indexes in the Australian PMI® expanded in September 2018. Five of the seven sub-indexes accelerated, with new orders reaching a six-month high (up 3.0 points to 62.6). Only the deliveries (down 1.1 points to 57.2) and sales (down 3.1 points to 57.6) sub-indexes slowed during the month, but both remained firmly in positive territory.

The employment sub-index indicated a faster rate of growth in August 2018 (up 4.8 points to 58.1) well above its 12-month average (55.2). This reflects ABS data showing national manufacturing employment at its highest level since 2010 (trend).

Five of the eight manufacturing sub-sectors expanded in September 2018, with expansions strongest in food & beverages, non-metallic minerals and wood & paper products. Recovery in the petroleum, coal & chemicals sub-sector has been slowing in recent months and was broadly stable at 50.5 in September 2018, with many respondents reporting that rising oil prices were putting upward pressure on input costs.

The input prices sub-index continued to rise in September 2018, recording its highest level since March 2011 (up 0.9 points to 78.3). The wages sub-index also remained on the up, lifting 4.6 points to another record high of 69.3. Despite this, the selling prices sub-index decreased by 1.9 points to 56.2, indicating that price increases for manufacturing customers slowed in September 2018 – but the upward trend across 2018 continues to suggest customer price increases are becoming more widespread among manufacturing businesses.

Background: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) is a national composite index calculated from a weighted mix of the diffusion indices for production, new orders, deliveries, inventories and employment. An Australian PMI® reading above 50 points indicates that manufacturing activity is expanding; below 50, that it is declining. The distance from 50 indicates the strength of expansion or decline. Australian PMI® results are based on responses from a national sample of manufacturers that includes all states and all sub-sectors. The Australian PMI® uses the ANZSIC industry classifications for manufacturing sub-sectors and sub-sector weights derived from ABS industry output data. Seasonally adjusted and trend data are calculated according to ABS methodology. The Australian PMI® commenced in 1992.